Schemes of Arrangement in Singapore - 2024 PDF

Corporate and Commercial Practice Insolvency Law and Practice Schemes of Arrangement Copyright © 2024, Singapore Institute of Legal Education 1 Legislation S 63 to 72 of the IRDA S 210 and 211 of the Companies Act Focus is on schemes for creditors of insolvent companies...

Corporate and Commercial Practice Insolvency Law and Practice Schemes of Arrangement Copyright © 2024, Singapore Institute of Legal Education 1 Legislation S 63 to 72 of the IRDA S 210 and 211 of the Companies Act Focus is on schemes for creditors of insolvent companies Who can commence scheme process Meaning of “company” – s 63(3) IRDA; s 210(11) Companies Act. Any corporation liable to be wound up under the IRDA. “Substantial connection” with Singapore Interim Moratorium Automatic Interim Moratorium under s64 IRDA (s211B Companies Act) Arises upon application, initial moratorium of 30 days – may be extended by court order Requirements – s64(4) IRDA E.g., evidence of creditor support for scheme, and where scheme not yet proposed, a brief description of the proposed scheme with sufficient particulars Re IM Skaugen 3 SLR 979 Interim Moratorium Scope of automatic interim moratorium – s64(1)(a) IRDA Can restrain acts outside Singapore – s64(5)(a) IRDA Does not affect rights under prescribed set-off or netting arrangements Key steps before a scheme becomes binding Application made to Court that one or more meetings of creditors be summoned (s.210(1) Companies Act) Proposed scheme is put before the meeting(s) of creditors for consideration and approved by requisite majority (s.210(3AB) Companies Act) Majority in number of each class of creditors representing three-fourths in value present and voting Key steps before a scheme becomes binding If proposed scheme is approved by requisite majority, the court may sanction the scheme (ss.210(3AB) and (4) Companies Act) A copy of the order of court sanctioning the scheme must be lodged with the Registrar (s.210(5) Companies Act) Application to Court for leave to convene meeting O.38 r.2(1) of the Rules of Court By way of ex-parte originating summons under O.38 r.2(1) of the Rules of Court Supported by affidavit by a duly authorised person in the company Application to Court for leave to convene meeting Court of Appeal in TT International 2 SLR 213 An application for leave to convene a meeting is not the appropriate forum to consider the merits and fairness of the scheme. The role of the court is primarily to decide whether a meeting should be called and the manner in which it should be conducted. Minimal level of disclosure by company – Court of Appeal in Pathfinder Strategic Credit LP 2 SLR 77. Application to Court for leave to convene meeting If there is no realistic prospect of a scheme receiving the requisite approval, the court should not act in vain in granting the application for the meeting to be convened TT International and another appeal 2 SLR 213 Re Ng Huat Foundations Pte Ltd SGHC 112 After leave is granted to convene creditors’ meeting Notice of meeting and explanatory statement must be sent to creditors Explanatory statement must: explain nature of scheme state any material interests of company’s directors and shareholders contain full and fair disclosure of information reasonably necessary to enable recipients to determine how to vote Classification of creditors Court of Appeal in TT International 2 SLR 213 – company must: “unreservedly disclose all material information to the court to assist it in arriving at a properly considered determination on how the scheme creditors’ meeting is to be conducted. Any issues in relation to the possible need for separate meetings for different classes of creditors ought to be unambiguously brought to the attention of the court hearing the application.” Classification of creditors Classification of creditors – the dissimilarity principle - TT International Creditors to be divided into separate classes if “their rights are so dissimilar that they cannot sensibly consult together with a view to their common interest” Possible classes of creditors Secured creditors Creditors with priority and preferential claims and are receiving payment in full compared to those receiving payment in part Unsecured creditors Creditors whose claims are subordinated in liquidation Issues on related unsecured creditors and contingent creditors – TT International Voting on proposed scheme Statutory majority required is Majority in number representing ¾ in value of the creditors or each class of creditors present and voting at the meeting Either in person or by proxy Cramming down dissenting classes of creditors Power of court to do so – s70 IRDA Requirements: At least one approving class Requisite approval from creditors meant to be bound by scheme overall No unfair discrimination between 2 or more classes of creditors Scheme is fair and equitable to each dissenting class Approval of scheme without meeting Power of court to approve scheme without meeting of creditors – s71 IRDA Conditions for approval would have been met if a meeting had been summoned Court Approval of Scheme The Court must be satisfied of three matters, namely: 1. Statutory provisions have been complied with; 2. Those who attended the meeting were fairly representative of the class of creditors concerned and there was no coercion of the minority; and 3. The scheme is one which a man of business or an intelligent and honest man, being a member of the class concerned and acting in respect of his interest, would reasonably approve. Court Approval of Scheme In Wah Yuen Electrical Engineering Pte Ltd v Singapore Cable Manufacturers Pte Ltd 3 SLR(R) 629, Court of Appeal refused to sanction the scheme due to lack of transparency on how related company debts were incurred. See also: Re Econ Corp Ltd 1 SLR(R) 273 - information on finances of company and parent company were withheld, and Re Horizon Knowledge Solutions Pte Ltd SGHC 270 - information on accounts and related creditors’ debts was withheld Court Approval of the Scheme Effect of the Court Order - All parties to the scheme are bound, including dissenting creditors (The Oriental Insurance Co Ltd v Reliance National Asia Re Pte Ltd 3 SLR (R) 121) Court Approval of the Scheme Effect of the scheme on 3rd parties - Scheme may incorporate terms that affect third party rights or obligations Daewoo Singapore Pte Ltd v CEL Tractors Pte Ltd 2 SLR (R) 791 Pathfinder Strategic Credit LP v Empire Credit Resources Pte Ltd 2 SLR 77 Termination of a scheme Scheme document will set out termination events, which may include: Duration Occurrence of events of default Final payment or distribution made to creditors and full implementation of scheme Vote at a meeting of creditors or on decision of the scheme manager End Copyright © 2024, Singapore Institute of Legal Education 23 Notice Copyright © 2024, Singapore Institute of Legal Education. 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